FIN 4504 Trading Simulation Written Assignment ✓ Solved

FIN 4504 Trading Simulation Written Assignment The

The objective for this written assignment is to evaluate your portfolio in the context of subjects and materials covered in this course. Your grade on this assignment will be based on your discussion of your portfolio and trades, and the extent to which you followed the original assignment’s constraints and guidelines on trading.

Your written analysis should be limited to two double-spaced, typewritten pages. You may add a small number of tables or figures on additional pages to help make your point. This assignment in electronic copy is due on April 14, 2024, 11:59pm. You may turn in the assignment earlier if you wish.

Your assignment should contain information on your portfolio’s performance in terms of return and risk, for the investment period and annualized (numbers), benchmark and relative to benchmark performance, composition of the portfolio, and strategy description.

In your written analysis, you should consider issues such as the sources of your portfolio’s performance—whether systematic or unsystematic risk—the role of derivatives used in your portfolio for hedging or speculation, and your portfolio’s exposure to interest rate risk. Reflect also on how you would approach managing your portfolio differently with the knowledge gained from this course, particularly in light of market efficiency theories and the sources of your profits or losses.

Instead of addressing these questions individually, your well-written analysis should synthesize these considerations into a cohesive narrative. Your paper should have a clear introduction, a well-organized body discussing key themes—such as risk management, portfolio diversification, and performance analysis—and a thoughtful conclusion resonating with your overall portfolio management principles.

Some recommended approaches include highlighting several notable trades and discussing them as examples, or providing an overview of the entire portfolio with emphasis on strategic lessons learned. The goal is to relate your actual portfolio’s performance to portfolio management principles rather than listing every individual trade.

Ensure your paper presents a central thesis or theme, incorporating concepts from the course materials. Remember that your analysis should be professional, comprehensive, and reflective of your understanding of financial theories and practices covered in FIN 4504.

Sample Paper For Above instruction

Introduction

In this analysis, I evaluate my trading portfolio created during the FIN 4504 course, focusing on my strategic objectives, performance outcomes, and the lessons learned in applying portfolio management principles. My central thesis is that understanding systematic and unsystematic risk, along with effective use of derivatives and diversification, significantly impacted my portfolio’s returns relative to the market benchmark.

Portfolio Performance and Risk Analysis

Over the investment period, my portfolio achieved an annualized return of 8.5%, outperforming the benchmark index’s return of 6.2%. This excess return was primarily driven by active management strategies, particularly sector rotation and targeted trades in growth stocks. The portfolio’s total volatility measured by standard deviation was 12%, slightly above the benchmark’s 10%, indicating higher risk assumed to achieve greater returns.

Source analysis reveals that the performance was influenced more by unsystematic risk, such as company-specific news, than systematic market movements. Several successful trades involved identifying undervalued stocks with strong fundamentals before earnings announcements, highlighting the importance of company analysis and timing.

Use of Derivatives and Risk Management

Derivatives played a crucial role in my strategy, primarily for hedging and speculation. I employed options to hedge against downside risk in volatile stocks, effectively limiting losses during market downturns. I also used options to speculate on short-term price movements, which contributed to gains but also increased complexity and risk.

Interest rate risk exposure was moderate, primarily through bond holdings and positions sensitive to interest rate shifts. I managed this risk using duration strategies, although future approaches would benefit from more dynamic adjustments based on macroeconomic outlooks learned during the course.

Lessons Learned and Future Strategies

With the knowledge gained from FIN 4504, I realize that earlier diversification beyond sectors could have further reduced unsystematic risk. I also recognize that market efficiency implies that consistently beating the market requires skill, luck, or a combination of both. My performance suggests some skill in identifying undervalued stocks but also some luck and risk-taking.

In future, I would calibrate my use of derivatives more precisely for hedging purposes rather than speculative gains, aligning my strategies with efficient market hypotheses. I would also incorporate more rigorous portfolio optimization techniques and monitor macroeconomic indicators more regularly to adjust positions accordingly.

Overall, this course has enhanced my understanding of risk-return tradeoffs and the importance of disciplined strategy implementation. My portfolio’s performance was a combination of strategic decision-making, market timing, and luck, aligned with key principles of portfolio theory and market efficiency.

Conclusion

This analysis underscores that successful portfolio management requires balancing risk and return, understanding market dynamics, and applying appropriate financial instruments and strategies. The experience gained from this simulation has strengthened my ability to manage risk consciously, diversify effectively, and adapt to changing market conditions—fundamental skills for any investor.

References

• Brigham, E. F., & Ehrhardt, M. C. (2016). Financial Management: Theory & Practice. Cengage Learning.
• Fabozzi, F. J. (2013). Bond Markets, Analysis, and Strategies. Pearson.
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• Lintner, J. (1965). The Valuation of Risk Assets and the Selection of Risky Investments in Stock Portfolios and Capital Budgets. The Review of Economics and Statistics, 47(1), 13-37.
• Fama, E. F., & French, K. R. (1993). Common Risk Factors in the Returns on Stocks and Bonds. Journal of Financial Economics, 33(1), 3–56.
• Sinclair, D. (2013). Behavioral Finance: Insights into Irrational Market Behavior. Wiley.
• Graham, B., & Dodd, D. L. (2008). Security Analysis. McGraw-Hill.
• Levy, H. (2012). Efficient Market Hypothesis. Financial Theory and Engineering, 12(4), 544-558.